More rough weather

Airlines grope for successful model

The contrast could not be more dramatic. Indigo, the low-cost airline, posts a profit for the third straight year. Kingfisher, the full-service carrier which acquired a low-cost one, is approaching the end of its tether with rising accumulated losses, and decides to end its low-cost service. So what works in civil aviation — low cost or full service? There is no one answer. As a rule, low-cost airlines like Southwest in the US and Ryanair in Europe have done better financially than the full-service carriers; Ryanair, for instance, enjoys a handsome 20 per cent profit margin. Logically, in a middle-income market like India, low-cost flying should be the more attractive end of the market. However, many full-service carriers are profitable too, like Singapore Airlines, but usually with much leaner margins and often with the help of regulated markets characterised by restricted bilateral rights. Even Air India used to be very profitable on its Gulf routes until these were gifted by the civil aviation ministry to a variety of Gulf airlines. The point is to be clear about business strategy and to stick to the plan. That, unfortunately, is more than can be said for both Kingfisher and Jet, India’s two largest airlines that are both in the red after having followed somewhat confused approaches in the effort to grow. In contrast, Indigo has stuck to the basics of its strategy: it uses one type of aircraft (which makes maintenance simpler, with fewer spares carried), does nothing to increase on-board weight or add to the time for turnaround at airports so that the plane is in the air for more hours in a day, and is fanatical about punctuality with a fleet of new planes that don’t develop snags. All of this has contributed to high passenger load factors, which of course lie at the heart of success in the business.

Look now at where the other airlines went wrong. First, there are the acquisitions and mergers that did not help. While the Air India-Indian Airlines merger has added to problems instead of yielding solutions, Jet and Kingfisher have made mistakes too. Kingfisher began with an ultra-premium image, reflecting a flamboyance that reflected its promoter’s personality, but then switched tracks to acquire the low-cost pioneer Air Deccan — primarily to fly international routes and conform to its promoter’s life view. Now it wants to junk the low-cost service. In turn, Jet Airways paid too much for Sahara and has been losing money heavily on some of its international routes. Now the two airlines show more mental confusion. Jet is reconfiguring its single-cabin aircraft into twin-cabin ones, indicating that those seeking and willing to pay for full-service economy class travel would like it to be available on as wide a network as possible. But this takes Jet in the opposite direction from Indigo, because a two-cabin strategy takes away from pure low-cost logic. As for Kingfisher, the airline has been seeking a financial package that will reduce its debt burden — so far, without luck.